WASHINGTON -- New money is about to flow into an area of the real estate market that has been hardest squeezed by the credit crisis: mortgages too large to be purchased or backed by Fannie Mae, Freddie Mac or the Federal Housing Administration.

Though heavily concentrated in California, portions of Florida and the Northeast, higher-cost neighborhoods throughout the country traditionally have depended upon the ready availability of "jumbo" mortgages to finance houses. But with the collapse last year of the private mortgage bond market on Wall Street, homebuyers, builders and refinancers who relied on jumbo financing were left with few sources -- except at punitively high interest rates and huge down payments.

That's about to change. Major banks are heading into the jumbo segment, originating big loans at affordable rates -- not for Wall Street bond traders but for their own investment portfolios.

Bank of America, the country's largest mortgage lender, is rolling out a large program to finance jumbo loans between roughly $730,000 and $1.5 million, with fixed 30-year rates starting in the upper 5 percent range. The loans will be available through the bank's retail network and also through its Countrywide Home Loans subsidiary. After April 27, Countrywide will be rebranded -- shedding the name it's had since 1969 -- and morph into Bank of America Home Loans. Bank of America acquired Countrywide in 2008.

Barbara Desoer, the bank's head of consumer real estate operations, said there's "a real need" for capital in the jumbo arena, where interest rates last fall sometimes exceeded conventional loan rates by three to five percentage points -- if financing was available at all.

Traditionally, jumbo loans have been defined as any home mortgage whose principal amount exceeded Fannie Mae's or Freddie Mac's statutory high-cost market purchase limit. Most recently that ceiling was $625,500, up from $417,000. But in 2008, Congress temporarily raised the upper limit in high-cost areas for both companies and FHA to $729,750. In the economic stimulus legislation passed by Congress last month, that maximum was extended through Dec. 31 of this year.

Though it will almost immediately become the biggest player in the jumbo loan segment, Bank of America will not be alone. With little fanfare, other financial institutions have become more active. For example, ING Group, an Amsterdam-based banking and insurance conglomerate, offers jumbos as large as $2 million through its online ING Direct unit. The minimum down payment for an ING Direct jumbo is 25 percent; Bank of America quotes a minimum 20 percent.

ING's jumbos typically are "5/1" and "7/1" hybrids with a fixed interest rate for the first five or seven years, followed by an adjustable rate tied to the LIBOR interbank index for the balance of the 30-year term. Current rates start around 5 percent. Continued...